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Speaker 2: His friends call him Mikey, and I'm his friend. I'm
Speaker 2: calling him Mikey. Mikey Shaw. Michael Shaw, senior Pharmer, biotechanaists
Speaker 2: Bloomberg Intelligence spased in London. Mike, you got to talk
Speaker 2: to me about what's going on with no vote Nordest.
Speaker 2: I thought these obesity drugs were the bomb here. What's
Speaker 2: going on with their guidance? That was a huge miss
Speaker 2: for them.
Speaker 3: Yeah, two pieces in use today versus the guidance cut,
Speaker 3: so second guidance cut of the year. So reported guidance
Speaker 3: now is calling for some percent sales grows, six percent
Speaker 3: operating profit growth after adjusting for currency, and that compares
Speaker 3: to fourteen and fifteen percent respectively previously. Now a lot
Speaker 3: of that is related to the US market. There, they're
Speaker 3: still seeing headwinds from compound and GLP one, which seems
Speaker 3: to be the main driver that's affecting wegov growth and
Speaker 3: there's a lack of visibility here. So all of that
Speaker 3: creates uncertain z for investors and also kind of questions
Speaker 3: around not only only twenty twenty five numbers, but the
Speaker 3: exit rate into twenty six. So there's concerns about you know,
Speaker 3: mid to long term growth given how concentrated or how
Speaker 3: reliant sorry Novo is on WE'REGOVI for growth. The other
Speaker 3: headwind is competition to a zepic, so that's the GP
Speaker 3: one for diabetes and that's another you know, key growth
Speaker 3: driver for the for the company. Second piece of news
Speaker 3: new CEO appointment. So they went with an internal candidate.
Speaker 3: I think the market was perhaps expecting them to go
Speaker 3: for an external candidate, so you know, perhaps a bit
Speaker 3: of disappointment there. But that said, you know he's been
Speaker 3: at the company. So this is Mike Dudster. He's been
Speaker 3: at the company since ninety two. He's been heading up
Speaker 3: international operations since twenty sixteen, and over that time, you know,
Speaker 3: we've seen international operations sales double to around eighteen billion dollars.
Speaker 3: So you know, he's an internal higher, he's familiar with
Speaker 3: the company culture. I think it's a bit too early
Speaker 3: to you know, to write him off before he's even started. Now,
Speaker 3: his focus is going to be on reget gaining ground
Speaker 3: to Lily in the obesite space, maintaining leadership in the
Speaker 3: diabetes space, and then improving execution. And that's something that's
Speaker 3: going to be key ahead of the Cagary semma launch
Speaker 3: as well as the launch for its oral JP one
Speaker 3: A in obesity, particularly given you know, Cagary Summer perhaps
Speaker 3: isn't as differentiated as we had hoped for, and then
Speaker 3: the oral JLP one profile perhaps trails that of Lily's
Speaker 3: in a car with journalists.
Speaker 4: Though the new CEO said he's planning to review the
Speaker 4: company's cost base with outsetting specific targets and metrics. So
Speaker 4: could this indicate indicate that Novo is preparing for a
Speaker 4: period of silver growth after the initial surge and demand,
Speaker 4: especially the blockbuster we Go V drug.
Speaker 3: I mean, I think it will be hard to slash
Speaker 3: R and D to be honest, So I mean, and
Speaker 3: they would need to you know, continue marketing, continue to
Speaker 3: do DTC in order to you know, in order to
Speaker 3: compete with Lily. They're obviously healy heavily investing into Capex
Speaker 3: at the moment, but there is probably some operating leverage
Speaker 3: in there, you know, to provide some sort of relief.
Speaker 3: I mean, the company's got a margin of about forty
Speaker 3: five percent, which is at the top end for large farmer.
Speaker 2: Hey, Mike, is there any reasons to believe that maybe
Speaker 2: the marketplace has been over estimating the size of this
Speaker 2: OBC drug market?
Speaker 3: I think, I mean, yeah, I think there's always a
Speaker 3: risk with it with an indication this size when you
Speaker 3: look at the market potential. You know, in the US alone,
Speaker 3: it's one hundred and thirty one hundred and forty million patients,
Speaker 3: which is a target population. There is a population then yeah,
Speaker 3: I mean there is a risk that you know, perhaps
Speaker 3: consensus did get ahead of itself. But the difficulty here is,
Speaker 3: you know, you have you know, huge runway of patients.
Speaker 3: There's obviously limited supply, so it's difficult to know kind
Speaker 3: of you know, how quickly that supply can come on board. Now,
Speaker 3: you know, Nova gives guidance around you know, their growth prospects.
Speaker 3: You know where they think sales et cetera. Are going
Speaker 3: to go, but they keep they don't necessarily quantify, you know,
Speaker 3: the cadence supply and how that how quickly that's going
Speaker 3: to come online. So that kind of makes forecasting quite difficult.
Speaker 3: And obviously they don't want to give that information because
Speaker 3: it's competitive information and they want, you know, Lily to
Speaker 3: know about it.
Speaker 2: Wait, back in my analyst days, I would have slammed
Speaker 2: at this management team because that guidance was brutal. They
Speaker 2: were nowhere close to hitting it in they're big reduction
Speaker 2: the guidance and we see the stock down twenty two
Speaker 2: percent today, down thirty seven percent year to date, fifty
Speaker 2: two week low. So they're paying the price for Miikey
Speaker 2: Shaw Folks is one of the best healthcare pharmat analysts
Speaker 2: in the city of London. Every institutional investor wants to
Speaker 2: talk to them. We appreciate getting a few minutes of
Speaker 2: his time. Miikei Shaw, Senior Pharma biotech analysts Bloomberg Intelligence
Speaker 2: over there in our London studios.
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Speaker 2: One of my very first jobs on Wall Street back
Speaker 2: in the late eighties, I was a research assistant in
Speaker 2: the equity research department of paynmall recovering the railroad and
Speaker 2: trucking industry. So I love the railroads. And today's a big,
Speaker 2: big deal. Union Pacific agrees to acquire Norfolk Southern for
Speaker 2: seventy two billion dollars. Now, the per share it's cash
Speaker 2: and stock, works out to like three hundred and twenty bucks.
Speaker 2: The Norfolk Southern is trading at a thirteen percent discount
Speaker 2: two hundred and seventy nine dollars in works trading today.
Speaker 2: It's actually down seven dollars today. I don't know what's
Speaker 2: going on out there. I'm not doing this stuff for
Speaker 2: a living anymore. But Lee Klaska, he is a senior
Speaker 2: transport logistics and chipping alys for Bloomberg Intelligence. Lee, I
Speaker 2: look at the stock price of Norfolk Southern and it
Speaker 2: tells me a hefty level of skepticism out there in
Speaker 2: the marketplace that this just mega deal can actually get done.
Speaker 3: How do you view it?
Speaker 5: Yeah, I think the whole speculation before the deal was
Speaker 5: formally announced about possible consolidation, you know, really fueled shares
Speaker 5: of Norfolk Southern previously. And I think people are just
Speaker 5: trying to take maybe a breather right now because there
Speaker 5: are some execution risks.
Speaker 6: Right this deal is not going to close.
Speaker 5: If it does close until early twenty twenty seven, it
Speaker 5: needs regulatory approval, which is not an easy thing to do.
Speaker 5: There were certain rules that we created at the Surface
Speaker 5: Transportation Board to make it very difficult for a large
Speaker 5: class monrail mergers to happen. That was BECAUST at one
Speaker 5: time in the eighties and nineties. Those sorts of deals
Speaker 5: resulted in terrible service. I think that the rails today
Speaker 5: are much more cognizant of service as it relates to integration.
Speaker 1: Uh.
Speaker 5: And I don't really think you know, either company once once,
Speaker 5: assuming a merger does happen, are going scorch earth in
Speaker 5: terms of, you know, what they're going to do to
Speaker 5: their networks. You know, they mentioned on the call that
Speaker 5: they had earlier today that they're really not going to
Speaker 5: lay off any uh, you know, frontline workers. Most of
Speaker 5: the probably layoffs are going to happen, uh you know
Speaker 5: in in in in the offices.
Speaker 2: Uh.
Speaker 5: So you know that would just mean that services uh
Speaker 5: would uh prevail. And one of the reasons why they
Speaker 5: are doing this, you know, from an outsider looking in,
Speaker 5: you know, it does make complete sense. You're going to
Speaker 5: reduce interchanges. They mentioned on their call this morning that
Speaker 5: between the two of them they interchange around a million
Speaker 5: car loads a day, and if they're just able to
Speaker 5: if that's that car load is able to be on
Speaker 5: the same network, it's not only going to improve network fluidity,
Speaker 5: it will actually lower the railroads their costs. Let's hope
Speaker 5: they pass on some of that cost savings to their shippers.
Speaker 6: I think that's what shippers might be concerned about.
Speaker 5: And it'll it'll provide probably a better service product that
Speaker 5: they can go out and compete against other modes such
Speaker 5: as trucks.
Speaker 6: And you know that's you.
Speaker 5: Know, also a good thing because you know, from an
Speaker 5: environmental standpoint, railroads are less fuel efficient. You know, trucking
Speaker 5: kind of deals with you know, turnover issues and trucker
Speaker 5: availability issues. Right now, that's not an issue, but at
Speaker 5: times it can be. And so you know, it is
Speaker 5: definitely a very interesting deal. It will create the first
Speaker 5: trans continental railroad, but you know, they do have their
Speaker 5: work cut out for them to get that regulatory approval.
Speaker 4: So the deal is worth eighty five billion dollars. How
Speaker 4: do they plan to make money back? What are finential
Speaker 4: wins so to speak? To justify that happy price tid.
Speaker 5: Yeah, they laid out two point seven five billion in synergies,
Speaker 5: about one point seven five and that two point seventy
Speaker 5: five is going to be from revenue.
Speaker 6: So what they're saying is that, you know, we.
Speaker 5: Can probably get more volume onto the network because it
Speaker 5: all of a sudden becomes a much more compelling service offering.
Speaker 5: And then about a billion dollars in cost savings and
Speaker 5: some of that. Again, you don't need to CEOs, you
Speaker 5: don't need two CFOs, you don't need two corporate headquarters.
Speaker 5: You know, the dimension They are going to have their
Speaker 5: headquarter in Omaha where Union Pacific is located, and keep
Speaker 5: a I think they word at a major presence in
Speaker 5: Atlanta where Norfolk is currently.
Speaker 6: So but you know, obviously they're not going to need
Speaker 6: as much space as they once have.
Speaker 5: And then there's technology benefits, you know, so you're only
Speaker 5: investing you know, money in technology once, not twice to
Speaker 5: get those productivity improvements.
Speaker 6: So I think those are the major aspects of it.
Speaker 5: And you know they mentioned that you know, they could
Speaker 5: be you know EPs a creative after year or two.
Speaker 2: Well, he mentioned a lot of regulatory agencies are going
Speaker 2: to weigh in here on this deal. I also think
Speaker 2: President Trump is likely to weigh in. Do we know
Speaker 2: anything about how he might view this deal or just
Speaker 2: consolidation in general? What's the views as to the Trump administration?
Speaker 6: I mean, we don't.
Speaker 5: The language that management noted on the call is like
Speaker 5: they wouldn't have moved forward with this transaction if they
Speaker 5: felt that it was impossible to get regulatory approval. So
Speaker 5: whether that means they were talking to the administration, whether
Speaker 5: that means they were talking to the STB or the
Speaker 5: DOJ or everybody in between, that's kind of you know,
Speaker 5: if you read between the lines, is what they were saying.
Speaker 5: The fact that they're not going to lay off any
Speaker 5: union foe is probably a net positive for a Donald
Speaker 5: president Donald Trump to say, you.
Speaker 6: Know, this is okay with me. You know.
Speaker 5: So there's a lot of unknown still and again this
Speaker 5: is this is going to take a long time.
Speaker 6: So we have a deal.
Speaker 5: It has to get Surface Transportation Board approval, which you
Speaker 5: know won't happen at least for a year and a half.
Speaker 4: Could this park more railroad mergers in the US, and
Speaker 4: if it goes through, what will shipping look like in
Speaker 4: fivet to ten years? You said, absolutely, please elaborate.
Speaker 6: Yeah.
Speaker 5: So, so the other railroads in the US are Burlington Northern,
Speaker 5: which is you know, owned by Berkshire Hathway. They may
Speaker 5: make their own bid for Norfolk Southern, or decide, you know,
Speaker 5: we're just going to go after CSX because if they
Speaker 5: do not merge, then they're going to be at a
Speaker 5: competitive disadvantage. Why would you want to send your freight
Speaker 5: across two railroads when you can send it across one.
Speaker 6: So it just would make sense.
Speaker 5: And if there is regulatory appetite for this kind of
Speaker 5: a transaction, you know, you could see a Berkshire hacked
Speaker 5: the Way and CSX coming and you know, if their
Speaker 5: competitors were able to get a deal, there's no reason
Speaker 5: why you wouldn't get a deal done between the two.
Speaker 5: A lot of ifs and butts and candies and nuts,
Speaker 5: but we'll see what happens.
Speaker 2: For an old real estate anamals like myself, today's a
Speaker 2: big day. I got to speak to two of my
Speaker 2: favorite railroad anamals on Wall Street, first Tony Hatch this
Speaker 2: morning and now leak Glasgow Senior Transport Logistics and Shipping
Speaker 2: annals for Bloomberg Intelligence. Again the big M and A
Speaker 2: trade of the year so far and certainly the biggest one,
Speaker 2: well personally one. I never thought i'd see a transatlantic
Speaker 2: a trans continental railroad. Union Pacific Regied acquired Norfolk Southern
Speaker 2: seventy two billion dollars. That's about three and twenty dollars
Speaker 2: a share that's in cash and stock would create North America.
Speaker 2: The US is first transcontinental railroad.
Speaker 6: That's a pretty cool thing.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 2: Isabell Lee, Paul Sweet. We're live here in our Bloomberg
Speaker 2: Director Broker Studio, streaming live on YouTube as well. So
Speaker 2: check us out there. Aerospace Airlines a lot of earnings
Speaker 2: going on in that part of the world. Boeing in
Speaker 2: jet Blue today. Let's check out with George Ferguson s
Speaker 2: in your Aerospace, Defense and Airlines analys for Bloomberg Intelligence.
Speaker 2: Safely asconsin don there in Princeton, New Jersey. Hey, George,
Speaker 2: let's start with Boeing. I know, you know, for analyst investors,
Speaker 2: for Boeing, it's all about cash flow and free cash
Speaker 2: flow and stemming the free cash flow bleed here. How
Speaker 2: did the company do this quarter?
Speaker 7: Yeah, I mean, so the free cash flow is still
Speaker 7: a little bit negative, not much. Operations positive a little
Speaker 7: bit two hundred million. I think it was roughly on
Speaker 7: two hundred negative free cash flow to a positive and
Speaker 7: cash flow I think roughly. So we're seeing an inflection
Speaker 7: point here in cash flow. So cashlow had been negative
Speaker 7: for the last I think it was six quarters before this,
Speaker 7: and I think that's just the sign of they're getting
Speaker 7: more aircraft delivered. They're gonna you know, they've got a
Speaker 7: lot of inventory still, they'll pull off the shelf to
Speaker 7: build aircraft going forward, to pull a bigger report proportion
Speaker 7: of stuff off the shelf than they would during normal times,
Speaker 7: which should juice that cash flow up. Uh, you know
Speaker 7: pretty well. So I think it it's you know, the
Speaker 7: turnaround is still in u is underway. It looks like
Speaker 7: it's uh, you know, well in uh you know, in
Speaker 7: swing in the results we saw on the way you know,
Speaker 7: company management commented on the end of the year and so, uh,
Speaker 7: you know, I think it was a pretty good results
Speaker 7: quarter for Boeing again, turn around intact.
Speaker 4: How are they addressing quality in safety issues, especially when
Speaker 4: it comes to the seven three seven MAX program.
Speaker 7: Yeah, I mean there it's you know, as Kelly Oprok said,
Speaker 7: it's a process. I think just the sign of seeing
Speaker 7: increased deliveries is showing us that the quality improvement at Spirit,
Speaker 7: you know, has has seen success. And they're talking about
Speaker 7: you know, they're at thirty eight seven thirty sevens a
Speaker 7: month now. Kelly Orperk says he's going to approach the
Speaker 7: FA in a short period of time and work on
Speaker 7: the forty two seven thirty sevens a month. So again,
Speaker 7: he must have some level of confidence that his quality
Speaker 7: and his engineering is good in order to in order
Speaker 7: to go further. It's it's not perfect. They've been slowed
Speaker 7: down a little bit in the certification of seven three
Speaker 7: seven DASH ten and DASH seven. They've pushed them into
Speaker 7: twenty twenty six. I think it's okay, it's not a
Speaker 7: big move. You know, we'd like to see them come
Speaker 7: faster because seven thirty seven to ten is a large
Speaker 7: competitor to the Airbus A three twenty, which is very
Speaker 7: successful and one of the reasons they saw United place
Speaker 7: a big order with Airbus. But again, I think that
Speaker 7: you can't expect this stuff to go on a straight line.
Speaker 7: And the fact that they think twenty twenty six is
Speaker 7: when they could get certification, it doesn't tell me anything's broke.
Speaker 7: It just tells me the process is nonlinear, and I
Speaker 7: think to be expected in aerospace.
Speaker 6: All right.
Speaker 2: Also, Jet Blue posted a smaller than expected loss. Here,
Speaker 2: what's going on with Jet Blue and an airline businesses
Speaker 2: as because I think the last quarter, Boy, these airline
Speaker 2: companies are really reticent to give any kind of guidance.
Speaker 7: Yeah, I mean a lot of them have come back
Speaker 7: with guidance and a lot of cases lower a lot.
Speaker 7: You know, the airline business right now is really counting
Speaker 7: on less capacity in the second half of twenty twenty five,
Speaker 7: and we'll see how that goes. Last time I looked
Speaker 7: at domestic capacity plans for three Q it's kind of
Speaker 7: about zero growth. I mean, I think they need to
Speaker 7: cut capacity in the marketplace. If you look at Jet
Speaker 7: Blues results, load factor fell by. I think it was
Speaker 7: around three hundred basis points down to the low eighties
Speaker 7: from mid eighties, and they held fares pretty much flat.
Speaker 7: Yields were kind of just up a little bit. So
Speaker 7: that just tells me that there's too much capacity in
Speaker 7: this market. They just can't fill airplanes at the right price.
Speaker 7: Jet Blue has other problems, like you know, the gear
Speaker 7: turbo fan keeps them from expanding. That means costs are
Speaker 7: ballooning on them. But I don't see how they'd want
Speaker 7: to expand right now because again, what I see as
Speaker 7: a market that has can't fill airplanes at the price
Speaker 7: that's going to keep them very profitable, and so someone's
Speaker 7: got to cut. And the question is who the full
Speaker 7: service carriers are saying, Hey, we got premium to subsidize us.
Speaker 7: We don't care the low costs are going to have
Speaker 7: to jet Blue will cut in three Q but every
Speaker 7: time they cut, their costs go high or per seat,
Speaker 7: so they're a bit of a challenging position.
Speaker 4: It does seem like the issues just compound for the
Speaker 4: companies in this space from aircraft shortages, delivery delays, pilot shortages,
Speaker 4: wage inflation, labor and negotiation and so on. Are there
Speaker 4: differences in how Boeing and Jet Blue addressing the issues
Speaker 4: or is really an industry wide consensus and problem.
Speaker 7: Well, I mean if you talk to Boeing, everybody wants
Speaker 7: an airplane, right and they're sold out in the seven
Speaker 7: thirty seven and seventy eight seven to the end of
Speaker 7: the decade. Everybody wants the newest. And I think what
Speaker 7: needs to happen is again the airlines are just putting
Speaker 7: too much capacity in the marketplace, especially in the US,
Speaker 7: and someone has to cry uncle and say, hey, you know,
Speaker 7: we can't take the profitability at these levels. Park some airplanes,
Speaker 7: get them out of the business so they can write
Speaker 7: size capacity. And I think nobody wants to do it.
Speaker 7: You have some competitors that are in a situation where
Speaker 7: they they you know, some of them are declared Chapter eleven.
Speaker 7: It's like Spirit and then and then refashioned themselves and
Speaker 7: got back out in the marketplace. But it's either someone's
Speaker 7: going to have to go away or the market's going
Speaker 7: to have to get negative enough and profitability that people
Speaker 7: start to park airplanes. As we get into laid end
Speaker 7: of this year, four Q and one Q, those are
Speaker 7: weak quarters for the US airline industry. If something doesn't improve,
Speaker 7: if you've got a Jet Blue that's barely positive positive
Speaker 7: and profitability in two q without a change in this market,
Speaker 7: that's that's a strong negative. Near the end of the year,
Speaker 7: people will start to cut capacity and try to boost fars.
Speaker 2: So, George, who does that? Is it one of the
Speaker 2: big three? I mean, Jet Blue can't drive capacity in
Speaker 2: this industry. It's got to be one of the big three, right, Yeah.
Speaker 7: Look, I don't think it's. The big three are in
Speaker 7: a game of chicken with the low cost right they
Speaker 7: think that they've got pole position here and that they
Speaker 7: just keep capacity and someone's going to fail on the
Speaker 7: low cost side because the low cost doesn't have this,
Speaker 7: you know, premium seating. They might be right right right now,
Speaker 7: it looks like their profitability is hanging in there. Low
Speaker 7: cost carriers are the ones taking it on the chin.
Speaker 2: Yep. We saw Southbuth Airlines actually now kind of start
Speaker 2: charging for bags and you can do seat reservations and
Speaker 2: all this stuff on that premium Yep. They didn't do before,
Speaker 2: which was part of their cachet. One could argue their brand,
Speaker 2: but they're saying, heck, we need the revenue. George, thanks
Speaker 2: so much for joining us.
Speaker 6: We appreciate that.
Speaker 2: George Ferguson, Senior Aerospace, Defense and Airlines Analyst. If it flies,
Speaker 2: he knows what's going on there.
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